McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

11

Introduction to

Operations Management

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Learning ObjectivesLearning Objectives Define the term operations

management Identify the three major

functional areas of organizations and describe how they interrelate

Compare and contrast service and manufacturing operations

Describe the operations function and the nature of the operations manager’s job

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Learning ObjectivesLearning Objectives Differentiate between design and operation of production systems

Describe the key aspects of operations management decision making

Briefly describe the historical evolution of operations management

Identify current trends that impact operations management

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Operations ManagementOperations Management Operations Management is: The management of systems or processes that create goods and/or provide services

Operations Management affects: Companies’ ability to compete Nation’s ability to compete internationally

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The OrganizationThe OrganizationThe Three Basic Functions

Organization

Finance Operations Marketing

Figure 1.1

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Value-Added ProcessValue-Added ProcessThe operations function involves the conversion of inputs into outputs

Inputs Land Labor Capital

Transformation/Conversion process

Outputs Goods Services

Control

Feedback

FeedbackFeedback

Value added

Figure 1.2

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Value-Added and Product Value-Added and Product PackagesPackages

Value-added elements make the difference between the cost of inputs and the value or price of outputs.

Product packages are a combination of goods and services.

Product packages can make a company more competitive.

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Historical Summary of Historical Summary of Operations ManagementOperations Management

Industrial revolution (1770s) Scientific management (1911)

Mass production Interchangeable parts Division of labor

Human relations movement (1920–60) Decision models (1915, 1960–’70s) Influence of Japanese manufacturers

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Automobile assembly, steel making

Home remodeling, retail sales

Automobile repair, fast food

The Goods–Service The Goods–Service ContinuumContinuumFigure 1.3

Computer repair, restaurant meal

Song writing, software development

Goods Service

Surgery, teaching

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Food ProcessorFood Processor

Inputs ProcessingOutputs Raw vegetablesCleaning Canned

vegetables Metal sheets Making cansWater CuttingEnergy CookingLabor PackingBuilding LabelingEquipment

Table 1.2

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HospitalHospitalInputs Processing OutputsDoctors, nursesExaminationTreated

patientsHospital SurgeryMedical suppliesMonitoringEquipment MedicationLaboratories Therapy

Table 1.2

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Manufacturing or Service?Manufacturing or Service?

Tangible Act

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Production of Goods Production of Goods vs. Delivery of Servicesvs. Delivery of Services

Production of goods – tangible output

Delivery of services – an act Service job categories

Government Wholesale/retail Financial services Healthcare Personal services Business services Education

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Key DifferencesKey Differences1. Customer contact2. Uniformity of input3. Labor content of jobs4. Uniformity of output5. Measurement of productivity

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Key DifferencesKey Differences6. Production and delivery7. Quality assurance8. Amount of inventory9. Evaluation of work10. Ability to patent design

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Goods vs. ServiceGoods vs. ServiceCharacteristic Goods ServiceCustomer contact Low HighUniformity of input High LowLabor content Low HighUniformity of output High LowOutput Tangible Intangib

leMeasurement of productivity Easy Difficul

tOpportunity to correct problems

High Low

Inventory Much LittleEvaluation Easier Difficul

tPatentable Usually Not

usually

Table 1.3

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Operations Management includes: Forecasting Capacity planning Scheduling Managing inventories Assuring quality Motivating and training employees Locating facilities Supply chain management And more . . .

Scope of Operations Scope of Operations ManagementManagement

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Types of OperationsTypes of OperationsTable 1.4

Operations ExamplesGoods Producing Farming, mining, construction,

manufacturing, power generationStorage/TransportationWarehousing, trucking, mail

service, moving, taxis, buses,hotels, airlines

Exchange Retailing, wholesaling, financial advising, renting or leasing

Entertainment Films, radio and television,concerts, recording

Communication Newspapers, radio and TV newscasts, telephone, satellites

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Decline in Decline in Manufacturing JobsManufacturing Jobs

Productivity Increasing productivity allows companies to maintain or increase their output using fewer workers

Outsourcing Some manufacturing work has been outsourced to more productive companies

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Challenges of Managing Challenges of Managing ServicesServices

Service jobs are often less structured than manufacturing jobs

Customer contact is higher Worker skill levels are lower Services hire many low-skill, entry-level workers

Employee turnover is higher Input variability is higher Service performance can be affected by worker’s personal factors

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Operations Management Operations Management Decision MakingDecision Making

Models Quantitative approaches Performance metrics Analysis of trade-offs Systems approach Establishing priorities Ethics

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Key Decisions of Operations Key Decisions of Operations ManagersManagers

WhatWhat resources/what amounts

WhenNeeded/scheduled/ordered

WhereWork to be done

HowDesigned

WhoTo do the work

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Decision MakingDecision MakingSystem Design–capacity–location–arrangement of departments–product and service planning–acquisition and placement ofequipment

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Decision MakingDecision MakingSystem operation

–personnel–inventory–scheduling–projectmanagement

–quality assurance

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Decision MakingDecision Making Models Quantitative approaches Performance metrics Analysis of trade-offs Systems approach Establishing priorities Ethics

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ModelsA model is an abstraction of reality.–Physical–Schematic–Mathematical

What are the pros and cons of models?

Tradeoffs

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Models Are BeneficialModels Are Beneficial Easy to use, less expensive Require users to organize Increase understanding of the problem

Enable “what if” questions Consistent tool for evaluation and standardized format

Power of mathematics

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Limitations of ModelsLimitations of Models Quantitative information may be emphasized over qualitative

Models may be incorrectly applied and results misinterpreted

Nonqualified users may not comprehend the rules on how to use the model

Use of models does not guarantee good decisions

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Quantitative ApproachesQuantitative Approaches Linear programming Queuing techniques Inventory models Project models Statistical models

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Analysis of Trade-OffsAnalysis of Trade-Offs Decision on the amount of inventory to stock Increased cost of holding inventory

vs. Level of customer service

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Systems ApproachSystems Approach“The whole is greater than

the sum of the parts.”

SuboptimizaSuboptimizationtion

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Pareto PhenomenonPareto Phenomenon A few factors account for a high percentage of the occurrence of some event(s).

80–20 Rule: 80% of problems are caused by 20% of the activities.How do we identify the vital

few?

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Ethical IssuesEthical Issues Financial statements Worker safety Product safety Quality Environment Community Hiring/firing workers Closing facilities Worker’s rights

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Business Operations Business Operations OverlapOverlap

Operations

Finance

Figure 1.5

Marketing

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Operations InterfacesOperations Interfaces

Operations

Personnel/Human resources

MIS

LegalPublic Relations

Accounting

Figure 1.6

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Trends in BusinessTrends in Business Major trends

The Internet, e-commerce, e-business

Management technology Globalization Management of supply chains Outsourcing Agility Ethical behavior

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Management TechnologyManagement Technology Technology: The application of scientific discoveries to the development and improvement of goods and services

Product and service technology Process technology Information technology

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Suppliers’

Suppliers

DirectSuppliers Producer Distributor Final

Consumer

Simple Product Supply Simple Product Supply ChainChainFigure 1.7

Supply Chain: A sequence of activitiesAnd organizations involved in producingAnd delivering a good or service

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Stage of Production Value Added

Value of

Product

Farmer produces and harvests wheat

$0.15 $0.25

Wheat transported to mill $0.08 $0.33Mill produces flour $0.15 $0.48Flour transported to baker $0.08 $0.56Baker produces bread $0.54 $1.00Bread transported to grocery store

$0.08 $1.08

Grocery store displays and sells bread

$0.21 $1.29

Total Value-Added $1.29

A Supply Chain for BreadA Supply Chain for Bread

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Other Important TrendsOther Important Trends Operations strategy Working with fewer resources Revenue management Process analysis and improvement

Increased regulation and product liability

Lean production